FISHER, J.
Bulkmatic Transport Co. and 59 other petitioners [hereinafter collectively
referred to as petitioners] are commercial trucking companies who use Indiana
highways in the course of their business. They challenge the constitutionality of the in
Indiana limitation on the proportional use exemption from Indiana's motor carrier fuel

Each petitioner has filed a Department Form MF-6431 Proportional Use
Exemption Claim For Refund requesting refunds for motor carrier fuel tax and motor
carrier surcharge tax for various tax periods during 1991 to 1995.See footnote
2See Ind. Code Ann.
§§ 6-6-4.1-4(d), -4.5(d) (West Supp. 1998) (amended 1999). The Department did not
rule on the petitioners' refund claims, and on November 21, 1997, the petitioners filed
this original tax appeal. See Ind. Code Ann. § 6-8.1-9-1(a), -1(c) (West Supp. 1998).
During the pendency of this original tax appeal, this Court issued its decision in
Bulkmatic II. In that case, this Court held that the in Indiana limitation of the
proportional use exemption violated the Commerce Clause.See footnote
3 On September 30, 1998,
the petitioners filed a motion for summary judgment asking that the Court once again
declare the in Indiana limitation on the proportional use exemption unconstitutional and
order the Department to refund the amounts claimed by petitioners in their refund
claims. On February 19, 1999, the Department filed its response. In that response, the
Department raised a number of issues that, in the Department's view preclude the

granting of summary judgment. On May 6, 1999, the Court heard oral argument on the
petitioners' motion.

ANALYSIS AND OPINION

Standard of Review

The Court reviews final determinations of the Department de novo and is bound
by neither the evidence nor the issues raised at the administrative level. See Ind.
Code Ann. § 6-8.1-9-1(d) (West Supp. 1998); ANR Pipeline Co. v. Department of State
Revenue, 672 N.E.2d 91, 93 (Ind. Tax Ct. 1996). Summary judgment is only
appropriate where there are no genuine issues of material fact and judgment may be
entered as a matter of law. See Ind. T.R. 56(C); Hyatt Corp. v. Department of State
Revenue, 695 N.E.2d 1051, 1053 (Ind. Tax Ct. 1998), review denied.

Discussion

Indiana levies two taxes on motor carriersSee footnote
4 who operate commercial vehicles in
Indiana. These taxes are imposed on the consumption of motor fuel on Indiana
highways, see Ind. Code Ann. §§ 6-6-4.1-4(a), -4.5(a) (West Supp. 1998); see also
generally Bulkmatic Transp. Co. v. Department of State Revenue, 648 N.E.2d 1156
(Ind. 1995) (Bulkmatic I), and are for the benefit of using Indiana's public highways.
See Roehl Transp., Inc. v. Department of State Revenue, 653 N.E.2d 539, 546 (Ind.
Tax Ct. 1995). These taxes are comprised of the motor vehicle fuel tax, which is
imposed at the same rate ($0.16 per gallon) as the tax paid by the general public as

everyday consumers of motor vehicle fuel,See footnote
5 and the motor carrier surcharge tax, which
is imposed at a rate of $0.11 per gallon. As a result, motor carriers pay $0.27 per
gallon of motor fuel consumed on Indiana highways. See Bulkmatic Transp. Co., 691
N.E.2d at 1373 n.2; Roehl Transp., 653 N.E.2d at 545 n.3.
The two taxes [hereinafter be referred to collectively as the motor carrier fuel tax]
are calculated by using a straightforward apportionment formula. First, the motor
carrier determines the amount of fuel it consumes in its entire operations, both within
and without Indiana. See Bulkmatic II, 691 N.E.2d at 1373. This figure is then
multiplied by a fraction, the numerator of which is the total number of miles traveled on
Indiana highways and the denominator of which is the total number of miles traveled
within and without Indiana. See Roehl Transp., 653 N.E.2d at 545. The resulting
product, which putatively represents the number of gallons of fuel consumed by a motor
carrier on Indiana highways, is then multiplied by the applicable rate of $0.27 to arrive
at the motor carrier's motor carrier fuel tax liability. See Bulkmatic II, 691 N.E.2d at
1373.
Although all of the fuel consumed in a motor carrier's operations is included in
the calculation of the tax, not all of the fuel consumed in a motor carrier's operations is
due to highway driving. See Roehl Transp., Inc., 653 N.E.2d at 544. Some commercial
vehicles have a single fuel tank that supplies both the vehicle's engine and attached

equipment on the vehicle.See footnote
6See Bulkmatic I, 648 N.E.2d at 1156. Under the statutory
formula, fuel consumed while operating the attached equipment is treated the same as
fuel consumed operating the engine, and, consequently, the motor carrier's tax liability
will reflect the fuel consumed operating the attached equipment. See Bulkmatic II, 691
N.E.2d at 1373 & n.3. (For the sake of consistency with the terminology used in
Bulkmatic II, the Court will refer to the attached equipment as power take-off (PTO)
equipment.)
To alleviate this result, the Indiana General Assembly exempted the fuel used in
operating PTO equipment from the motor carrier fuel tax. See Ind. Code Ann. §§ 6-6-
4.1-4(d), -4.5(d) (West Supp. 1998) (amended 1999). The amount of fuel exempted
from the tax is determined not by how much fuel is actually consumed in operating the
PTO equipment, but rather by a rule adopted by the Department.See footnote
7See Bulkmatic II,
691 N.E.2d at 1373. The rule adopted by the Department exempts a fixed percentage
of the fuel consumed. (Thus, the exemption is referred to as the proportional use
exemption.) The fixed percentage varies according to the type of vehicle and the type
of PTO equipment on the vehicle. See id.; Ind. Admin. Code tit. 45, r. 13-4-7 (1996).
However, the Indiana General Assembly has limited this exemption to the use of PTO

equipment in Indiana.See footnote
8 As a result, although the fuel consumed in a motor carrier's
operation of PTO equipment in all fifty states is considered in the determination of a
motor carrier's tax liability, Indiana only exempts fuel consumed by operating this PTO
equipment in Indiana.
The practical effect of the in Indiana limitation is to exact a different price for the
use of Indiana roads based on where the motor carrier decides to operate its PTO
equipment. See Bulkmatic II, 691 N.E.2d at 1376. For example, if 10,000 gallons of
motor fuel are apportioned to Indiana under the statutory formula, the motor carrier's
tax liability will be $2700 before the proportional use exemption. If the motor carrier's
fleet only travels through Indiana and never uses PTO equipment in Indiana, then the
motor vehicle's tax liability will remain at $2700. If, however, the motor carrier uses
PTO equipment in Indiana, that tax liability will be decreased by the proportional use
exemption,See footnote
9 thereby lowering the effective motor carrier fuel tax rate. As a result, if a
motor carrier uses PTO equipment, the amount of that motor carrier's tax liability
depends on where it uses the PTO equipment.
As noted above, in Bulkmatic II, this
Court recently held that the disparity in tax treatment caused by the in Indiana limitation
violated the Commerce Clause because it discriminated against interstate commerce.

The Department chose not to appeal that decision. Now, the Department asks the
Court to reconsider Bulkmatic II in this case.
By its terms, the Commerce Clause is only an authorization for Congress to
regulate commerce. However, it is settled law that the Commerce Clause, even in the
absence of Congressional action, acts as a limitation upon the power of the states.
See Camps Newfound/Owatonna v. Town of Harrison, Inc., 520 U.S. 564, 571, 117
S.Ct. 1590, 1596, 137 L.Ed.2d 852 (1997). One of these limitations is that a state may
not discriminate against interstate commerce. See West Lynn Creamery, Inc. v. Healy,
512 U.S. 186, 192, 114 S.Ct. 2205, 2211, 129 L.Ed.2d 157 (1994). This limitation also
acts upon the states' power to tax, and no state, consistent with the Commerce Clause,
may impose a tax that discriminates against interstate commerce. See General Motors
Corp. v. Tracy, 519 U.S. 278, 287, 117 S.Ct. 811, 818, 136 L.Ed.2d 761 (1997) (The
negative or dormant implication of the Commerce Clause prohibits state taxation . . .
that discriminates against . . . interstate commerce . . . .); Westinghouse Elec. Corp. v.
Tully, 466 U.S. 388, 403, 104 S.Ct. 1856, 1865, 80 L.Ed.2d 388 (1984) (collecting
cases).
As noted by one commentator, the U.S. Supreme Court has never precisely
delineated the scope of the doctrine that bars discriminatory taxation by states. See
Walter Hellerstein, Commerce Clause Restraints on State Tax Incentives, 82 Minn. L.
Rev. 413, 415 (1997); see also West Lynn Creamery, Inc., 512 U.S. at 210, 114 S.Ct. at
2220 (Scalia, J., concurring) (labelling U.S. Supreme Court negative Commerce Clause
jurisprudence a quagmire once one gets past facial discrimination against interstate

commerce); Westinghouse Elec. Corp., 466 U.S. at 403, 104 S.Ct. at 1865 (case-by-
case analysis of state taxation schemes has not always provided precise guides to the
states). However, the basic principle is clear: a state taxation scheme must operate
evenhandedly with respect to interstate commerce. See Fulton Corp. v. Faulkner, 516
U.S. 325, 331, 116 S.Ct. 848, 856, 133 L.Ed.2d 796 (1996) ([A] State may not tax a
transaction or incident more heavily when it crosses state lines than when it occurs
entirely within the State.) (quotation omitted); Hellerstein, supra, at 415 (A tax which
by
its terms or operation imposes greater burdens on out-of-state goods, activities, or
enterprises will be struck down as discriminatory under the Commerce Clause.). The
in Indiana limitation on the proportional use exemption violates this basic principle and
therefore violates the Commerce Clause. This conclusion is confirmed by a detailed
review of three Supreme Court Commerce Clause cases
In Maryland v. Louisiana, 451 U.S. 725, 101 S.Ct. 2114, 68 L.Ed.2d 576 (1981),
the Supreme Court evaluated the constitutionality of Louisiana's First-Use Tax on
certain uses of natural gas brought into Louisiana. The Supreme Court noted that [a]
state tax must be assessed in light of its actual effect considered in conjunction with
other provisions of the State's tax scheme. Id. at 756, 101 S.Ct. at 2134 (emphasis
added). Accordingly, a court examining a state tax must look not only to the tax, but
also to any credits, exemptions or exclusions associated with that tax. See id., 101
S.Ct. at 2134; see also West Lynn Creamery, Inc., 512 U.S. at 211, 114 S.Ct. at 2220
(Scalia, J., concurring) (neutral tax combined with discriminatory credit or exemption
violates the Commerce Clause because it is in principle no different from discriminatory

taxation of out-of-state economic interests). In the case of Louisiana's First-Use Tax,
due to the various credits and exemptions associated with that tax, in-state consumers
of natural gas were exempted from the burdens of the tax, whereas out-of-state
consumers were not. Moreover, the Supreme Court found that one of the credits
(Severance Tax Credit) associated with the tax favored those who owned natural gas
subject to the tax and engaged in oil, gas, and mineral production in Louisiana.
According to the Supreme Court, this was improper because
the obvious economic effect of this Severance Tax Credit is to encourage natural
gas owners involved in the production of [] gas [subject to the tax] to invest in
mineral exploration and development within Louisiana rather than to invest in
further development of [gas subject to the tax] or in production in other States.

Id. at 757, 101 S.Ct. at 2134 (emphasis added).
In Boston Stock Exchange v. New York Tax Commission, 429 U.S. 318, 97 S.Ct.
599, 50 L.Ed.2d 514 (1977), the Supreme Court was called upon to determine the
constitutionality of a New York stock-transfer tax. The tax at issue was imposed on a
securities transaction if any part of that transaction occurred within New York. (Due to
the nature of the securities business, transactions related to a sale of securities may
take place in New York, while other transactions, such as the actual sale of the
securities, may take place outside of New York.) If the taxable transfer involved a sale,
the tax was imposed on the selling price per share and the number of shares sold.
In imposing this stock-transfer tax, New York provided incentives for non-
residents tranferring securities to conduct their sales within New York. New York
offered these non-residents a 50% reduction in the tax when the sale was made in New

York. New York also limited the total tax liability of any taxpayer (resident or non-
resident) to $350 for any single transaction involving a sale in New York. As a result,
taxpayers contemplating large-block transactions could reduce their tax liability if they
made those sales in New York.
The Supreme Court struck down this stock-transfer tax scheme. New York, the
Supreme Court found, did not provide the evenhanded treatment demanded by the
Commerce Clause. Id. at 332, 97 S.Ct. at 608. Rather, New York was using its
power to tax an in-state operation as a means of requiring other business operations to
be performed in the home State. Id. at 336, 97 S.Ct. at 610 (internal quotation marks
and alteration omitted). This was wholly incompatible with the policy of free trade
between the states embodied in the Commerce Clause.
In 1984, relying heavily on
Maryland v. Louisiana and Boston Stock Exhange
,
the U.S. Supreme Court decided Westinghouse Electric Corp. v. Tully, a case with a
great deal of factual similarity to the one at bar. Westinghouse Electric arose after
Congress enacted Domestic International Sales Corporations (DISC) tax incentives.
Under federal tax law, DISCs were exempted from income tax, and their shareholders
were only taxable on a portion of that income. New York decided to attribute DISC
income to a DISC's parent corporation and apportion that income (along with the
parent's non-DISC income) on the basis of a standard apportionment formula (i.e., on
the basis of the parent's in-state property, payroll, and receipts versus total property,
payroll, and receipts). New York also provided a tax credit on DISC income based on
the ratio of the DISC's export business actually conducted in New York to export

business conducted in all states. Westinghouse Electric Corp. challenged the
constitutionality of the tax credit. It asserted that the credit violated the Commerce
Clause because it discriminated against parents of DISCs to the extent that the DISCs
made export shipments from outside New York.
The Supreme Court agreed. First, the Supreme Court noted that New York's
credit was not insulated from scrutiny simply because the DISC income was fairly
apportioned to New York under New York's apportionment formula. In the words of the
Supreme Court, Fairly apportioned and non-discriminatory are not synonymous
terms[,] id. at 399, 104 S.Ct. at 1863, and nothing about the apportionment process
releases the State from the constitutional restraints that limit the way in which it
exercises its taxing power over the income within its jurisdiction. Id. at 398-99, 104
S.Ct. at 1863. The Court also rejected New York's argument that restricting the credit
to those exports made from New York would prevent taxpayers from receiving a credit
with respect to DISC income not apportioned to New York. The Court stated, This
argument ignores the fact that the percentage of the DISC's accumulated income that is
subject to New York's franchise tax is determined by the parent's business allocation
percentage, not by the export ratio.See footnote
10Id. at 399, 104 S.Ct. at 1863.

The Court then turned to the actual effect of the tax and the credit together. The
Court noted that the export credits ha[d] the effect of treating differently parent
corporations that are similarly situated in all respects except for the percentage of their
DISC's shipping activities conducted from New York. Id. at 400, 104 S.Ct. at 1863.
The scheme had the effect of allowing parents a greater tax credit as the DISC
move[d] a greater precentage of its shipping activities into the State of New York. Id.,
104 S.Ct. at 1863. In addition, the scheme decreases the credit as the DISC increases
its shipping activities in other states.See footnote
11 Thus, parents were penalized if their DISCs
conducted out-of-state shipping activities and benefited if they conducted shipping
activities within New York.
The obvious result of this scheme was to foreclose[] tax neutral decisions on
the part of taxpayers and 'create[] an advantage' for firms operating in New York by
placing 'a discriminatory burden on commerce to its sister States.' Id. at 406, 104
S.Ct. at 1867 (quoting Boston Stock Exch., 429 U.S. at 331, 97 S.Ct. at 608). It was of
no moment that the discrimination took the form of a denial of a credit for out-of-state
shipping activitities rather than a discriminatory tax rate because the discriminatory
economic effect of these two measures would be identical. Id. at 404, 104 S.Ct. at
1866; see also New Energy Co. v. Limbach, 486 U.S. 269, 108 S.Ct 1803, 100 L.Ed.2d
302 (1988) (striking down a tax credit because its effect would be to impose a higher
tax on out-of-state goods). As a result, New York could not evade Commerce Clause
restrictions on its ability to tax DISC income by using a discriminatory credit rather than
a discriminatory tax.
These three Supreme Court decisions expose the constitutional infirmities of the
in Indiana limitation on the proportional use exemption.
A motor carrier choosing to use
PTO equipment outside of Indiana is penalized by Indiana for doing so.
This violates
the Commerce Clause. Once Indiana decided to bring all gallons consumed in
operating PTO equipment into the apportionment formula, Indiana was required to
apply that formula consistently to all gallons consumed in operating PTO equipment.
See Maryland v. Louisiana, 451 U.S. at 758-59, 101 S.Ct. at 2135-36 (gas leaving state
cannot be treated differently from gas remaining in state).
In other words, where the
gallons are consumed should be irrelevant. However, Indiana exempts only those
gallons consumed in Indiana, and it is essentially doing what New York attempted to do

with its discriminatory export credit.
The in Indiana limitation distorts a neutral
apportionment formula and has the unmistakable effect of discriminating against out-of-
state PTO use.
By engaging in this discrimination, Indiana is exercising its power to tax motor
fuel to coerce the direction of additional economic activity to Indiana. See Boston
Stock Exch., 429 U.S. at 336, 97 S.Ct. at 610; see also Bulkmatic II, 691 N.E.2d at
1377 (quotingHellerstein, supra, at 426-27). Because motor carriers are subjected to a
a higher tax burden if they use their PTO equipment outside of Indiana, they will be
more likely to use that equipment in Indiana. Thus, motor carriers are unable to make a
tax-neutral decision about where they will use their PTO equipment. See Boston Stock
Exch., 429 U.S. at 331, 97 S.Ct. at 607-08.
In addition, the in Indiana limitation on the proportional use exemption runs afoul
of the Commerce Clause's prohibition on discrimination against out-of-state economic
interests. See Camps Newfound, 520 U.S. at 579-80, 117 S.Ct. at 1598. As noted in
Bulkmatic II, PTO equipment is often used in loading and unloading cargo. See
Bulkmatic II, 691 N.E.2d at 1376-77; see alsoCamps Newfound, 520 U.S. at 576, 117
S.Ct. at 1598 (effect of discriminatory property tax exemption was to dissuade camps
from serving out-of-state clientele). By reducing the transaction costs of Indiana
onloads and offloads of cargo relative to out-of-state onloads and offloads of cargo, the
in Indiana exemption makes the petitioners more likely to make onloads and offloads of
cargo for their Indiana customers. See Bulkmatic II, 691 N.E.2d at 1376-77. The
Commerce Clause forbids Indiana from using its taxing power in such a manner. See

Westinghouse Elec. Corp., 466 U.S. at 406, 104 S.Ct. at 1867.
The Department's arguments to the contrary do not alter this conclusion. Before
turning to the merits of the Department's arguments, the Court notes that the
Department has not favored the Court with any citation to Supreme Court Commerce
Clause case law in those portions of its brief dealing with the constitutionality of the in
Indiana limitation. This would be troubling enough if the Court had not issued its
decision in Bulkmatic II. However, because Bulkmatic II specifically discussed many
recent U.S. Supreme Court decisions dealing with the Commerce Clause and state
taxation, the failure of the Department to discuss these cases is inexcusable.See footnote
12See
County Line Towing, Inc. v. Cincinnati Ins. Co., No 35A02-9811-CV-938, slip op. at 9
(Ind. Ct. App. July 22, 1999) (briefs should be of material assistance to court) (citing
Young v. Butts, 685 N.E.2d 147, 151 (Ind. Ct. App. 1997)).
The Department's main argument in support of the constitutionality of the in
Indiana limitation has some surface appeal. In the Department's view, one must focus
on the lodestar. The lodestar is the total number of gallons of motor fuel

apportioned to Indiana under the statutory apportionment formula. Some of these
gallons, because they are subject to Indiana's unquestioned power to tax, see Roehl
Transp., Inc., 653 N.E.2d at 545-46, may be exempted from tax as well. In addition, as
the Department points out, gallons that are not apportioned to Indiana are not subject
to Indiana motor carrier fuel tax. As a result, the Department argues, Indiana does not
have to exempt gallons that were never apportioned to Indiana in the first place.
A similar argument was decisively rejected in Westinghouse Electric Corp. In
that case, New York argued that the DISC tax credit merely forgives a portion of the
tax that New York has jurisdiction to levy, WestinghouseElec. Corp., 466 U.S. at 398,
104 S.Ct. at 1862, and therefore was constitutional. The Court stated,
New York's apportionment procedure determines what portion of a business'
income is within the jurisdiction of New York. Nothing about the apportionment
process releases the State from the constitutional restraints that limit the way in
which it exercises its taxing power within its jurisdiction.

Id. at 398-99, 104 S.Ct. at 1863. Consequently, the mere fact that Indiana is refunding
tax that it could have kept does not make the in Indiana limitation constitutional.
As for the Department's contention that Indiana does not have to pay refunds for
gallons never subject to taxation, a similar argument was also decisively rejected in
Westinghouse Electric Corp. In that case, New York argued that limiting its DISC credit
to exports originating from New York ensured that New York was not exempting income
not taxable by New York in the first place. The Court saw through that argument: This
argument ignores the fact that the percentage of DISC accumulated income that is
subject to New York's franchise tax is determined by the parent's business allocation

percentage, not by the export ratio. Id. at 399, 104 S.Ct. at 1863; see also Hellerstein,
supra, at 444. Similarly, gallons of motor fuel are apportioned to Indiana on the basis
of the percentage of miles traveled in Indiana, not on the basis of where a motor carrier
uses its PTO equipment.
Thus, the in Indiana limitation distorts the apportionable base and has the effect
of treating differently motor carriers solely on the basis of where they choose to use
their PTO equipment. The Department's contention that the in Indiana limitation merely
prevents refunds of taxes that have not been paid only serves to obfuscate this reality.
The bottom line is that all other things being equal (i.e., total motor fuel consumption
and percentage of miles traveled within Indiana), a motor carrier will pay more tax to
Indiana the more it uses its PTO equipment elsewhere.See footnote
13 Any argument that does not

acknowledge this indisputable fact is disingenuous.
Moreover, the Department's contention that the in Indiana limitation merely
prevents refunds of taxes that have never been paid is also factually erroneous. When
a motor carrier consumes motor fuel in operating PTO equipment, Indiana taxes a
percentage of that motor fuel based on the percentage of miles traveled in Indiana.
This is true whether the fuel is consumed inside or outside Indiana. This, coupled with
the fact that the apportionment percentage does not vary according to where the motor
carrier uses its PTO equipment, makes the Department's contention that the fuel was
never taxed in the first place simply untrue.
In essence, the Department's argument is an attempt to point to the legitimacy of
the apportionment formulaSee footnote
14 to mask the unconstitutionality of the in Indiana limitation.
But the Court is not so easily hoodwinked. Indiana certainly has a right to include
motor fuel consumed in out-of-state PTO use in its apportionment formula; it also has
the right to use the percentage of miles traveled in Indiana in that formula. However, in
doing so, it may not discriminate between gallons consumed in out-of-state PTO use
and gallons consumed in in-state PTO use because the apportionment formula does
not take into account the percentage of in-state PTO use. See Westinghouse Elec.

Corp., 466 U.S. at 399, 104 S.Ct. at 1863 ('Fairly apportioned' and 'nondiscriminatory'
are not synonymous terms.) However, as a result of the in Indiana limitation, in-state
gallons are treated better than out-of-state gallons. This is not the substantially
evenhanded treatment demanded by the Commerce Clause. See Boston Stock Exch.,
429 U.S. at 332, 97 S.Ct. at 608.
The Department's final argument is that, because the motor fuel has already
been apportioned to Indiana, the proportional use exemption does not involve interstate
commerce, and, therefore, the in Indiana limitation cannot discriminate against
interstate commerce. This argument is completely without merit. The consumption of
fuel in the transportation and loading and unloading of cargo is in interstate commerce,
see Case of the State Freight Tax, 82 U.S. (15 Wall.) 232, 275-76 (1872), and the
motor carrier fuel taxing scheme affects this commerce by increasing its costs.See footnote
15
Because this taxing scheme affects interstate commerce, it is subject to Commerce
Clause scrutiny. See Commonwealth Edison Co., 453 U.S. at 614-17, 101 S.Ct. at
2952-53. As a result, the in Indiana limitation cannot be saved on this basis.
Now that the Court has resolved the question of the constitutionality of the in
Indiana limitation, the Court turns to the Department's other arguments in response to
the petitioners' summary judgment motion. The Department's main contention is that,
even if the in Indiana limitation is unconstitutional, the Court may not order refunds
because there is no statutory authorization to do so. Accordingly, the Department

maintains that the only possible remedy for the petitioners is for the Court to declare
the entire proportional use exemption unconstitutional and hold the exemption void ab
initio. As a result, no motor carrier would be entitled to the proportional use exemption,
and, thus, any discrimination would be removed.
Of course, as a prospective matter, the Department is certainly correct. The
Commerce Clause only requires that the states not discriminate against interstate
commerce. See Associated Indus. v. Lohman, 511 U.S. 641, 656, 114 S.Ct. 1815,
1825, 128 L.Ed.2d 639 (1994). As a result, when a state tax exemption has been
declared unconstitutional under the Commerce Clause, the state may either apply the
exemption in a non-discriminatory manner or remove the exemption altogether. In this
case, the Indiana General Assembly has already made that choice by substantially
amending the proportional use exemption.
However, that only addresses one part of the problem. The question remains
about what remedy is due the petitioners who have been taxed in an unconstitutional
manner. The Department contends that they should get nothing. Due process requires
otherwise.See footnote
16See generally Reich v. Collins, 513 U.S. 106, 115 S.Ct. 547, 130 L.Ed.
549 (1994); McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S.
18, 110 S.Ct. 2238, 110 L.Ed. 17 (1990). In this case, by applying for a refund under
subsections 6-6-4.1-4(d), -4.5(d), the petitioners have pursued a clear and certain

postdeprivation remedy (i.e., a remedy for those who chose to pay the tax and litigate
later). Reich, 513 U.S. at 113, 115 S.Ct at 551; Newsweek, Inc. v. Florida Dep't of
Revenue, ___ U.S. ___, 118 S.Ct. 904 (1998). As a result, they are entitled to
meaningful backward-looking relief.See footnote
17Harper v. Virginia Dep't of Taxation, 509 U.S.
86, 101, 113 S.Ct. 2510, 2519, 125 L.Ed.2d 74 (1993).
Of course, meaningful backward looking relief does not necessarily mean
refunds. It means that Indiana must put the petitioners in the same position as they
would have been absent the discrimination vis-
à
-vis those who received favorable
treatment. See Associated Indus., 511 U.S. at 656, 114 S.Ct. at 1825 (quoting
McKesson Corp., 496 U.S. at 44 n.27, 110 S.Ct. at 2254 n.27). Simply declaring the
proportional use exemption void ab initio does not do so. Accordingly, the
Department's remedy is plainly inadequate.
In its brief, the Department unsuccessfully attempts to distinguish Reich and
Newsweek, Inc. by pointing out that those cases involved an unconstitutional tax, rather
than an unconstitutional refund. This case involves (as described above) a refund
scheme whereby taxpayers first pay the motor carrier fuel tax and then apply for a
refund. Therefore, according to the Department, the authority to tax is not at issue, as
it was in Reich and Newsweek, Inc. Rather, it is the authority to refund a portion of that
tax that is at issue. Consequently, it is the refund and not the tax itself that must be
thrown out to set the constitutional balance correct. (Dep't Br. at 12).

This attempt to elevate nomenclature over the due process rights of the
petitioners is wholly unmeritorious. First of all, the commands of due process are not
made any less by the fact that Indiana has chosen to collect a tax and then allow a
refund on a discriminatory basis instead of levying a tax in a discriminatory manner
when the practical economic effect of these two methods is indistinguishable. Cf.
Westinghouse Elec. Corp., 466 U.S. at 405, 104 S.Ct. at 1866 (formal distinctions that
lack economic substance are irrelevant in analyzing state tax under Commerce
Clause). Second, the Department ignores the fact that taxpayers who qualified for the
unconstitutional refund incurred a lesser tax burden than did the petitioners. To adhere
to the Department's view would leave this unequal treatment in place and would fly in
the face of repeated pronouncements of the Supreme Court requiring meaningful
backward looking relief. The unequal treatment of the petitioners for the tax periods at
issue
must be rectified
in order
to set the constitutional balance correct
.
See footnote
18See Assoc.
Indus., 511 U.S. at 656, 114 S.Ct. at 1825.
Apart from its arguments on the constitutionality of the in Indiana limitation and
the remedies available to the petitioners, the Department opposes summary judgment
on other grounds. However, at oral argument, the Department suggested the
possibility of the Court granting partial summary judgment on the constitutionality of the

in Indiana limitation. This would allow the Department to exercise any appeals that it
may wish to take on the constitutionality of the in Indiana limitation without having to
litigate the other issues first.See footnote
19 The Court finds this suggestion well-taken.
Consequently, the Court now GRANTS partial summary judgment on behalf of
the petitioners on the issue of the constitutionality of the in Indiana limitation on the
proportional use exemption. Specifically, the Court holds that the in Indiana limitation
on the proportional use exemption violates the Commerce Clause, U.S. Const. art I, §
8, cl. 3.

Footnote: 1In Bulkmatic Transport Co. v. Department of State Revenue, 691 N.E.2d 1371,
1372 (Ind. Tax Ct. 1998) (Bulkmatic II), this Court reviewed the history of the
proportional use exemption and the in Indiana limitation on that exemption. The Court
sees no reason to repeat that review here. Footnote: 2Throughout the opinion, unless otherwise indicated, the Court refers to the law
as it existed during the relevant tax periods. Footnote: 3U.S. Const. art. I, § 8, cl. 3 (The Congress shall have Power . . . [t]o regulate
Commerce . . . among the several States . . . .).Footnote: 4See Ind. Code Ann. § 6-6-4.1-1(a) (West Supp. 1998) (defining carrier).Footnote: 5See Ind. Code Ann. § 6-6-2.5-28(a) (West Supp. 1998).Footnote: 6There are various kinds of attached equipment and various uses for such
equipment. One such use is to offload cargo. See Bulkmatic II, 691 N.E.2d at 1372-73.Footnote: 7Under subsections 6-6-4.1-4(d) and -4.5(d), the carrier is required to pay the tax
first and then file a refund claim. See Bulkmatic II, 691 N.E.2d at 1372 n.1. Throughout
the opinion, the term exemption is used to describe this process, and the term also
refers to the exemptions provided in both subsections. Footnote: 8This year, the General Assembly significantly changed proportional use
exemption. See Act of May 13, 1999, No. 222, §§ 3-6, 1999 Ind. Legis. Service (West)
891, 892-94. The General Assembly changed the exemption to a credit, eliminated the
in Indiana limitation, and capped the total amount of proportional use credits and
refunds at $3,500,000 per fiscal year. Footnote: 9As stated above, the proportional use exemption varies according to the type of
vehicle and the type of attached equipment. Footnote: 10In their treatise on state taxation, Jerome R. Hellerstein and Walter Hellerstein
elaborate on this observation:

When New York took the step of limiting the credit by reference to the
DISC's New York export ratio, it was tying the credit to New York activities in a
manner that no longer corresponded evenhandedly to the DISC income being
taxed. Rather, the effective New York tax rate on the DISC income being taxed
(i.e., the DISC income apportioned to New York by the parent's business
allocation percentage) varied directly with the extent of the taxpayer's New York

DISC-related activities. The greater the percentage of a DISC's export
shipments from New York, the greater the relative credit for taxes paid upon
DISC income within New York's tax power, and the lower the effective New York
tax rate on such income. The lower the percentage of a DISC's export
shipments from New York, the lower the relative credit for taxes paid upon DISC
income, and the higher effective New York tax rate on such income. New York
thus released its grip on DISC income within its taxing power only to the extent
that DISC-related activities were carried on in the state. It kept its grip firmly
upon DISC income within its taxing power to the extent that DISC-related
activities were carried on outside the state.

Footnote: 11The Supreme Court also provided hypothetical examples to illustrate the
discriminatory effect of the export credit. See id. at 400-02 n.9, 104 S.Ct. at 1863-65
n.9. Of course, when it considers the constitutionality of a state taxation scheme, the
Supreme Court is not limited to hypothethical examples. Recently, the Supreme Court
noted the actual effect of a discriminatory state taxation scheme. See South Cent. Bell
Tel. Co. v. Alabama, 119 S.Ct. 1180, 1186 (1999) (This discrimination is borne out in
practice, as the record, undisputed here, shows that the average domestic corporation
pays only one-fifth the franchise tax it would pay if it were treated as a foreign
corporation.).Footnote: 12The Department is reminded that, unless the law specifically requires
otherwise, state agencies, when they appear in state courts, are to be treated like any
other litigant. See, e.g., Byrd v. State, 592 N.E.2d 690, 691 (Ind. 1992) (citing State v.
Robbins, 221 Ind. 125, 46 N.E.2d 691 (1943)). As a result, briefs submitted by the
Department that are clearly inadequate will not be excused simply because the
Department defends the public fisc. Otherwise, the Court would be abandoning the
neutral stance it must take when it resolves disputes between taxing authorities and
taxpayers. In this case, however, the petitioners have not complained about the failure
of the Department to cite, let alone discuss, the relevant Supreme Court Commerce
Clause case law in its brief. Consequently, the Court will address the Department's
arguments on the merits. It is hoped that the Department will not repeat its deficient
briefing in future cases.Footnote: 13At oral argument, counsel for the Department stated that there was no
discrimination against interstate commerce because [e]verybody is being treated
exactly the same. (Oral Arg. Tr. at 20). This statement is nothing short of
preposterous. That the exemption is equally available to all those who use PTO
equipment in Indiana has nothing to do with whether the in Indiana limitation is
nondiscriminatory. The export credit at issue in WestinghouseElectric Corp. was
equally available to all those who exported from New York, yet it discriminated against
interstate commerce. The issue in this case is whether Indiana has the right to
condition an exemption from the motor carrier fuel tax on the basis of where the motor
carrier chooses to use PTO equipment, not whether all motor carriers who use PTO
equipment out-of-state are treated the same as other motor carriers who use PTO
equipment out-of-state. The point, of course, is that if Indiana must treat out-of-state
PTO equipment use exactly the same as Indiana PTO equipment use, it is no answer to
say that Indiana treats all Indiana PTO equipment use in the exact same manner and
that Indiana treats all out-of-state PTO equipment use in the exact same manner.
After making this statement, counsel for the Department offered an example
about an older truck that consumes more motor fuel per mile and will accordingly pay
more tax. Apparently, counsel was attempting to suggest that the difference between
the tax a motor carrier pays when the motor carrier uses PTO equipment in Indiana and
when that motor carrier uses PTO equipment out-of-state can be chalked up to the
[same] fact[s] of life that an operator of an older truck must endure. (Oral Arg. at 22).

The Court rejects this suggestion. That it is permissible to have the incidence of this
tax fall more heavily on some trucks due to their lower gas mileage has nothing to do
with whether conditioning the amount of a motor carrier's tax on the state in which the
motor carrier chooses to use its PTO equipment is constitutional. It is this fact of life
that the Department has consistently ignored throughout its brief.

Footnote: 14This Court has previously upheld the constitutional legitimacy of the statutory
apportionment formula. See Roehl Transp., Inc., 653 N.E.2d at 546.Footnote: 15This, of course, is not problematic. Even interstate business must pay its
way. Commonwealth Edison Co. v. Montana, 453 U.S. 607, 616, 101 S.Ct. 2946,
2953, 69 L.Ed.2d 884 (1981) (alteration and internal quotations omitted). Footnote: 16The Department cites a number of Indiana cases discussing what remedies are
available when a court declares an Indiana statute unconstitutional. It goes without
saying that these cases, to the extent that they are inconsistent with the Fourteenth
Amendment Due Process Clause, must give way. See Ind. Code Ann. § 1-1-2-1
(1981).Footnote: 17States are, of course, free to maintain an exclusively predeprivation (i.e.,
litigate first, pay later) remedial scheme. See Reich, 513 U.S. at 110-11, 115 S.Ct. at
550. Footnote: 18In all likelihood, the only way for this to occur is that the Department provide
refunds to the petitioners. However, the Court will withhold judgment on this issue so
as to allow the Department the opportunity to determine whether it is possible to
provide the petitioners an adequate remedy without receiving refunds. If the
Department determines that it is possible to do so, the Court will consider that
possibility. Footnote: 19In its brief, the Department also pointed out that a few of the petitioners' refund
claims are time-barred. At oral argument, the counsel for the petitioner conceded that
there were approximately four or five carriers that filed beyond the statute. (Oral Arg.
Tr. at 6). Accordingly, the Court will dismiss all untimely claims by separate order.